Conspiracy theories that the US Federal Reserve is a tool of the “deep state” have percolated since at least the 1990s, when pseudoscientist G. Edward Griffin wrote The Creature from Jekyll Island. More recently Curtis Yarvin, an influential far-right thinker, has questioned whether Fed independence is a good idea – despite evidence that countries with independent central banks have lower inflation and interest rates.
No wonder the financial markets wobbled last week on reports that Donald Trump plans to fire Jerome “Jay” Powell, the Fed chair. They sent a clear message: do not mess with the Fed’s independence.
Powell has distinguished himself with his determination to stand up to pressure from the president, who has called the man he appointed in 2018 “terrible”, a “numbskull” and a “major loser”. Powell insists it is the central bank’s job to set interest rates and that the president is not legally allowed to fire him.
If Trump tries to fire him for misconduct related to a $2.5bn refurbishment of the Fed building, as rumoured, it would add a new level of economic uncertainty – not just for the US, but for the global economy and financial system, on everything from interest rates to helping to resolve financial crises. Powell’s term is up next May. And even if he survives till then, will the markets be able to trust whichever loyalist Trump picks to replace him to be as independent? Powell surprised the president by turning out to have a spine, but lightning is unlikely to strike twice.
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